Skilled-Unskilled Wage Gap Versus Evolving Trade and Labour Market Structures in the EU

Abstract

This paper proposes an alternative approach to the empirical study of wage gap between workers with different educational levels in the enlarged EU. The analysis is based on sectoral database, linking labor market statistics and trade data at the level of 12 manufacturing sectors in a group of 20 European countries: selected New Member States (NMS-5) and former EU-15 economies, in the period 1995-2005. The results of the empirical model suggest that wage inequality between workers with academic education and lower is associated mainly with domestic (and not foreign) labor market conditions and, to a lower extent, to trade forces. Degree of trade penetration affects skilled-unskilled wage gaps but we do not find significant wage effects of imports from less developed EU countries. The same result is confirmed when we consider trade in intermediates and outsourcing practices in Europe.